Coles poised for Lion's share

Harvey Fresh is on the verge of losing its contract to supply supermarket giant Coles in the latest twist in WA's milk wars.

Rival processor Lion has snatched away the biggest contract in the WA dairy industry in a major setback for Parmalat-owned Harvey Fresh.

The change requires a final tick of approval from the board of Wesfarmers, which owns Coles, but Lion has already started signing up farmers to boost its milk volumes.

The Coles contract comprises about 30 million litres a year and involves satisfying the supermarket's $1-a-litre retail strategy on home-brand milk.

Parmalat now faces the headache of what to do with processing capacity after a plunge in world prices for milk products.

In another complication, Parmalat has just agreed to a deal to take the milk produced by Lactanz Dairies.

Lactanz, WA's biggest dairy farming operation, is producing about 18 million litres a year.

Parmalat, which operates throughout Australia, but is controlled by the Lactalis Group based in France, declined to comment pending the decision of the Wesfarmers board.

It bought Harvey Fresh from the Sorgiovanni, Scolaro and Bonavita families for about $120 million in April last year.

Lion's big win comes a little over a year after it lost the Woolworths supply contract to Brownes, the third of the big players in WA milk processing.

Brownes is contracted to supply Woolworths until the end of 2021.

The deal is understood to be worth about $20 million a year for 25 million litres of milk.

The latest round of supermarket musical chairs leaves Harvey Fresh back where it was four years ago when Brownes had the Coles contract and Lion had the Woolworths contract.

Wesfarmers stripped Brownes of the Coles contract and handed it to Harvey Fresh in 2011, just months after upsetting farmers with the launch of its $1-a-litre milk advertising campaign.

Brownes had been sold to private equity firm Archer Capital and it is believed the local family-owned status of Harvey Fresh played a part in the Wesfarmers decision.

Lion is also set to win the Coles supply contract in South Australia away from Parmalat.

A Lion spokeswoman said it was too soon to speculate on either of the deals. Coles was also playing its cards close to its chest, but confirmed Coles-brand milk supply contracts in WA and South Australia were up for tender.

"That tender is ongoing and Coles is still in discussions with the prospective suppliers," a spokesman said.

"Coles will announce the successful supplier or suppliers in due course."

With Brownes scaling back non-core operations ahead of a sale and Lion undercutting Harvey Fresh on the Coles contract, producers are anxious ab- out the impact on farmgate prices.

Lion, which produces the Masters and Pura brands from Bentley, has a 100,000-litre storage silo at Harvey Fresh and could need the help of its rival to meet the terms of the Coles contract.